Thursday, October 5, 2006

Media agencies make good business out of being lazy

Back in 2006 when I wrote this, it astounded me that agencies could get away with what seemed to me to be such lazy practises.  Now, I'm impressed.  Many of the network agencies have created profitable businesses, supplying substandard work to clients who aren't incentivised or (sometimes) sufficiently skilled to tell the difference, and who are therefore unwilling to pay for better.  This seems to me to be the definition of good marketing; the profitable satisfation of a consumer's demand.  Until marketers wise up, this is all they're going to get...

At just under £1bn, the UK online advertising market is booming.  The Internet Advertising Bureau’s latest survey, carried out by PwC and WARC, reveals 40.3% growth in the first half of 2006, compared to the same period in 2005. 

At this rate of growth, two key milestones will be reached by the end of 2006.  Online advertising will be bigger than national press, and it will be half the size of TV. 

Search is continuing to outpace the rest of the sector – 58% up year on year – and display is up 33%.  In a wider market where spends are down (on TV, press and radio) this is a real achievement. 

This is the 17th consecutive quarter-on-quarter growth, a continuous record since the wobbles of late 2001.  All of which would make you think agencies would have got their act together by now and figured out how to create value for advertisers in this sector, and make money for themselves at the same time.  Seemingly not.

For some years now, I’ve been banging on about how there’s a concentration of expenditure in the top ten sales points for online media that’s not working to advertisers’ benefit.  Three years ago (the last time the IAB published a figure) 83% of revenue went to the top 10.  If developments here are following those in the US, this is getting worse – research by the US-based Online Publishers Association reckoned 88% went to the top 4 in 2005.

It is argued that concentrating spend in this way gives greater leverage against key properties.  This is true only in the very short term.  Online media are uniquely measurable – trading with niche sites as well as broad sites gives the agency/advertiser a set of performance benchmarks which can be used over time to move pricing and quality along.  And if you only trade with a handful you not only lose these benchmarks, but those publishers will pretty quickly figure out that you lack credible alternatives to dealing with them – and that’s only going to drive the price you pay up.

It’s a fairly rudimentary trading technique imported from TV.  But it isn’t the real reason why agencies support this concentration.

It’s because it saves them money.

It doesn’t get better value, or even better pricing.  But it does wear out less shoe leather if you’ve only got to plan your way around a handful of sites, rather than schlepping round loads of second and third tier sites in an attempt to drive value for someone who’s not aware of what you’re doing.

This shouldn’t be too shocking.  Agencies are businesses, and if their clients are unaware of the value drivers in media, then some will exploit that – especially if all they ever hear about is the importance of cost saving on agency fees.

No.  What’s shocking is the fact that agencies are open about this, and no-one seems to bother. 

Here’s one head of digital at a major agency, quoted in Media Week in August:  “More choice means more time spent planning, which for an agency can lead to negative consequences for the bottom line”.  Another, the joint chairman of a network buying operation in Campaign in May:  “We deal with a huge variety of media owners but the real volume is going through half-a-dozen vendors”.

And in Revolution in January, perhaps the most brazen admission from an agency:  “Clients are constantly trying to reduce their commission rates, agencies have to cut their cloth accordingly and if you do deals with the bigger sites it is easier”.

No mention of driving value for advertisers.  No reference to exploiting the diversity of sites, audiences and creative media opportunities the medium provides.

As the medium continues to boom, these self-serving idlers will get by.  But as marketers learn more about the medium, they’ll understand the damage this is doing to their online media ROI.  And as the medium matures, these practices (and hopefully these practitioners) will find that the market and advertisers have left them behind.